The U.S. dollar softened against key global currencies on Friday as investor nerves increased ahead of a critical tariff deadline and rising concerns over America’s fiscal outlook following President Donald Trump’s approval of a major tax cut and spending package.

Although the dollar gained ground on Thursday, boosted by stronger-than-expected job data that pushed back expectations for Federal Reserve rate reductions, those gains quickly faded. Early European trading saw the U.S. Dollar Index slip 0.1% to 96.96, extending its decline toward a second straight weekly loss.

This pullback follows the narrow passage of Trump’s extensive tax and expenditure bill in the House of Representatives, which is projected to add roughly $3.4 trillion to the nation’s already staggering $36.2 trillion debt. The bill, encompassing sweeping tax breaks alongside cuts to social welfare programs, is expected to be signed into law later on Friday.

Investors are now turning their attention to July 9, when a fresh round of tariffs will take effect targeting countries that have yet to finalize trade agreements with the U.S. Trump confirmed that formal tariff notices would be issued on Friday, signaling a shift away from individual negotiations to broad tariffs ranging between 10% and 70%.

Currency Markets React to Trade Tensions

The euro climbed 0.1% to $1.1773, positioning for a weekly gain of about 0.4%. Meanwhile, the Japanese yen strengthened by 0.4% to 144.375 per dollar, and the Swiss franc gained 0.2% to 0.7939 per dollar. The dollar’s broad retreat reflects mounting investor unease about the economic impact of escalating trade disputes and doubts about the sustainability of U.S. public finances.

“The demand for the dollar is waning,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Concerns over soaring U.S. debt and trade disruptions are weighing on confidence. If inflation rises while trade slows, the Fed will face a tough balancing act.”

Earlier this week, the dollar hit multi-year lows against the euro and the British pound, marking its worst first half-year showing since 1973. Market participants remain unsettled by the unpredictable U.S. tariff policies and perceived weakening fiscal discipline.

International Moves Ahead of Tariff Deadline

European Commission President Ursula von der Leyen stated the EU’s goal to secure a preliminary trade agreement with the U.S. before the July 9 deadline. Japan, still without a deal, is reportedly sending its lead trade negotiator to Washington over the weekend to seek progress.

China escalated trade tensions by announcing retaliatory tariffs of up to 34.9% on European brandy imports, effective July 5 and set to remain for five years.

Robust Jobs Data Provides Temporary Boost

The release of the June U.S. employment report on Thursday offered a momentary lift for the dollar. Nonfarm payrolls increased by 147,000, surpassing forecasts of 110,000 and alleviating fears of a sharp labor market downturn.

“The job market is easing gradually rather than collapsing, which is a positive sign,” said Hirofumi Suzuki, chief currency strategist at SMBC. “However, with trade talks likely to disappoint, further dollar weakness and renewed yen strength could lie ahead.”

Market sentiment now heavily favors the Federal Reserve keeping interest rates steady at its July meeting, with the probability jumping to 95.3% from 76.2% earlier in the week, according to CME’s FedWatch tool. Most analysts foresee no rate cuts before September at the earliest.